Industrial Clusters and Corporate Social Responsibility in Developing Countries: What

We Know, What We do not Know, and What We Need to Know

Author(s): Peter Lund-Thomsen, Adam Lindgreen and Joelle Vanhamme
Source: Journal of Business Ethics , January 2016, Vol. 133, No. 1, Special Section on
Industrial Clusters and Corporate Social Responsibility in Developing Countries (January
2016), pp. 9-24
Published by: Springer

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J Bus Ethics (2016) 133:9-24
DOI 10.1007/sl0551-014-2372-8 I ■ I CrossMark

Industrial Clusters and Corporate Social Re

in Developing Countries: What We Know, W
not Know, and What We Need to Know

Peter Lund-Thomsen • Adam Lindgreen

Joelle Vanhamme

Published online: 24 September 2014

© Springer Science+Business Media Dordrecht 2014

Abstract This article provides a review of what we imperialism, and the potential for joint-action CSR initia
know, what we do not know, and what we need to know tives in clusters of small and medium-sized enterprises to
about the relationship between industrial clusters and cor offer a new form of greenwashing. From this review, the
porate social responsibility (CSR) in developing countries. authors develop a theoretical model to explain why CSR
In addition to the drivers of and barriers to the adoption of has not become institutionalized in many developing
country clusters, which in turn suggests that the vast
CSR initiatives, this study highlights key lessons learned
from empirical studies of CSR initiatives that aimed to majority of industrial clusters in developing countries are
improve environmental management and work conditions likely to engage in socially irresponsible behavior.
and reduce poverty in local industrial districts. Academic
work in this area remains embryonic, lacking in empirical Keywords Corporate social responsibility • Developing
evidence about the effects of CSR interventions on the countries • Industrial clusters
profitability on local enterprises, workers, and the envi
ronment. Nor do theoretical frameworks offer clear
How do enterprises located in distinct geographical regions
explanations of the institutionalization and effects of CSR
in the developing world compete globally, without compro
in local industrial districts in the developing world. Other
mising the economic, social, and environmental interests of
key limitations in this research stream include an excessive
their stakeholders, including owners, employees, and local
focus on export-oriented industrial clusters, the risk that
communities? This question constitutes the heart of research
CSR becomes a form of economic and cultural
into corporate social responsibility (CSR) in industrial clus
ters located in developing countries (Accountability 2006).
Considering the preliminary state of this research stream, we
need to provide some definitions before we can start
answering the question; specifically, we adopt Blowfield and
P. Lund-Thomsen (El)
Center for Corporate Social Responsibility/Center for Business
Frynas's (2005, p. 503) definition of CSR:
and Development Studies, Copenhagen Business School,
an umbrella term for a variety of theories and prac
Porceltenshaven 18A, 2000 Frederiksberg, Denmark
e-mail: plt.ikl@cbs.dk tices all of which recognize the following: (a) that
companies have a responsibility for their impact on
A. Lindgreen society and the natural environment, sometimes
Department of Marketing and Strategy, Cardiff Business School,
beyond legal compliance and the liability of indi
University of Cardiff, Aberconway Building, Colum Drive,
Cardiff CF10 3EU, UK viduals; (b) that companies have a responsibility for
e-mail: lindgreena@cardiff.ac.uk the behavior of others with whom they do business
(e.g., within supply chains); and (c) that business
J. Vanhamme
needs to manage its relationship with wider society,
Edhec Business School, 24 Avenue Gustave Delory, CS 50411,
59057 Roubaix Cedex, France whether for reasons of commercial viability or to add
e-mail: joelle.vanhamme@edhec.edu value to society.

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 10 P. Lund-Thomsen et al.

Furthermore, we define
centrations of companies o
industries (Giuliani 2005)
local economies prosper i
ized global economy (Hum
Kaplinsky (2000) states,
local economies should eng
a question of how and on w
might lead to sustained
could prompt a social and
in industrial clusters. basis, we provide an assessment of what we know about the
In the 1990s, many articles and policy papers promoted impacts of CSR initiatives in cluster settings and
local economic growth through cluster development (Sch- oretical underpinnings of extant literature, which
mitz and Nadvi 1999), often by highlighting the benefits for some research limitations. In addition to developing
small and medium-sized enterprises (SMEs) located in analytical framework that we hope guides future i
industrial districts in developing countries (Nadvi 1999a; gâtions of CSR in developing country clusters,
Schmitz 2004). Joining a cluster seemingly could help elude by highlighting our main findings.
SMEs reduce the transaction costs associated with running
their business, by making it easier for them to access
specialized suppliers, local support agencies, training CSR in Industrial Clusters: Key Drivers
institutes, a skilled workforce, relevant consultants, and
logistics firms that could help their business grow (Hum- In academic literature pertaining to CSR in indu
phrey and Schmitz 2002). Their proximity with other clusters in developing countries, the enforcement o
SMEs, operating in the same or related industries, also emmental regulations related to the environment an
would facilitate knowledge exchanges, horizontally laws often serves as a prerequisite for cluster engage
(between SMEs) and vertically (between lead SMEs and in CSR (Kennedy 2006). However, we also fin
their supply chain networks) (Posthuma and Nathan 2010). spread skepticism about the potential of so-calle
Some authors argued further that local business associa- mand and control or compliance-based approach
tions and public-private partnerships could prompt initia- improving environmental and labor standards in
fives to upgrade the production, processes, and marketing (Blackman 2006). In India for example, Dasgupta
competences of local SMEs in clusters (Bazan and Navas- asserts that the enforcement of environmental law
Aleman 2004; Nadvi 1999a), which would be critical if been largely ineffective, because the enforcement p
cluster-based SMEs faced a common external challenge ignores the micro-level reality for many SMEs, whic
that no single SME could handle alone. For example, new to operate in informal or semi-formal settings. En
market requirements, government regulations, or buyer neurs often are unaware of environmental laws an
demands would fundamentally alter the competitive arena, lations; lack the technical, financial, and man
and local, cluster-based SMEs might address this challenge capacities required to implement legislation; and
more effectively than individual SMEs (Schmitz and Nadvi on a short-term basis that makes it difficult, if not im
1999). sible, for them to perceive the business benefits related to
Few studies have explored whether the development of environmental managem
local clusters actually proceeds in such an economically, environmental legislation
socially, and environmentally responsible fashion though driven hundreds of tho
(Battaglia et al. 2010; Hoivik and Shankar 2011; Testa preneurs out of their jobs,
et al. 2012). Across various perspectives, rare articles rely lihoods for themselve
on CSR discourse (Accountability 2006). Instead, they necessarily improving the
mainly consist of single case studies, highlighting the other cluster-based SME
potential role and limitations of cluster-based SMEs' Prior literature also
engagement in joint green initiatives, such as the investi- business associations, as
gâtions of how joint-cluster initiatives have sought to environmental initiatives b
combat environmental pollution in Central American and Blackman and Kildegaar
South Asian leather tannery, brick kiln, and textile clusters 2012). However, simp
through common effluent water treatment plans or cleaner does not guarantee the suc
technologies (Crow and Batz 2006; Lund-Thomsen 2009). ter-wide CSR initiatives. In

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Corporate Responsibility: Theoretical and Qualitative Studies 11

and feature members with highly divergent interests. For campaigns or brib
the Jalandhar football cluster for example, entrepreneurs environment
eventually had to form a separate foundation, the Sports contexts, priva
Goods Foundation of India, to address the issue of child associations take
labor in football manufacturing, which threatened the measures and e
cluster's reputation among international buyers (Lund- effective than a r
Thomsen and Nadvi 2010a). Cricket manufacturers had not induce clust
been directly involved in any media reports of child labor behavior (Blac
in the broad sporting goods cluster though, so they had ing by trade unions
little incentive to help football producers in Jalandhar prove effective in cre
address this issue (Lund-Thomsen and Nadvi 2009). clusters, because
Moreover, clusters are not equal in their relative man- connected to local so
agerial capacity, financial clout, and entrepreneurial vision. pressure (i.e.,
Some cluster associations (e.g., the Kaur tanneries cluster affects their overal
in Pakistan) represent the interests of a few larger firms, nities in whic
largely ignoring the needs of many SMEs, and particularly 2006). In this sens
microenterprises, operating therein (Lund-Thomsen 2009). tom-up pressures
In such cases, it becomes difficult to secure sufficient buy- improved enviro
in for cluster-wide CSR initiatives across all firms in the Among the ke
cluster (Accountability 2006). For some smaller firms, it CSR initiatives,
may simply be financially unviable to contribute to joint developing country
efforts, especially if they engage only in seasonal produc- and environm
tion or operate with very low margins (Blackman 2006). nomic developm
The social networks that link particular production environmental co
clusters also may help explain the relative strength or cluster studies
weakness of business associations for engaging in joint- (Accountability
action CSR initiatives. In a study of the Palar Valley tan- entrepreneurs adop
nery clusters, Kennedy (1999) shows that leather tanneries enforcement
in some key clusters were owned by a tightly knit Muslim initiatives, often
community, operating in Hindu-majority areas. Despite Other studies
occasional tensions between the Muslim owners/managers contracting of
and Hindu workers, it proved an effective tool for moni- work conditio
toring member behavior and applying peer pressure to 2012). For exam
ensure member involvement in the financing and opera- Jalandhar (Ind
tions of common effluent water treatment plants by the that cluster-based
cluster (Kennedy 2006). to break local trade unions so that they can ensure the
These studies suggest an emerging consensus that the stability of production and thus their profit ma
combination of different drivers, rather than any single tactic, entrepreneurs would send some factory
factor alone, produces socially and environmentally work out of their homes, also rehiring som
responsible behavior within clusters (Blackman 2006; Lund- subcontractors, which reduced the form
Thomsen and Nadvi, 2010a; Tewari and Pillai 2005). In this duction process (Jamali et al., forthc
connection, Blackman (2006) points out that command and employees worked at their decentralized home
control policies are in themselves insufficient, unless they in factories, it became virtually impossible f
are buttressed by informal regulation and peer monitoring. unions to organize the workforce, leverage
Cluster-based SMEs are too numerous to be monitored collective bargaining, or achieve freedom
effectively by government regulatory authorities in devel- (Khan 2007a). Finally, participation in l
oping countries, which often lack the financial and human may reduce local producers' incentives t
resources needed to perform virtually any such monitoring environmental and labor records. In India fo
functions. The cluster-based entrepreneurs also are politi- vast majority of industrial clusters are locally
cally powerful and maintain close connections with existing no global value chain incentives exist to pro
regulatory authorities, through support for political improve their practices (Gulati 2012) (Tabl

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 12 P. Lund-Thomsen et al.

Table
Table 1 Drivers behind and barriers to 1 Drivers
CSR adoption in developing behind and
country clusters that in environmental management literature in general, the
country clusters

Drivers
Drivers Barriers consensus appears to be that the introduction of cleaner
technologies is preferable (Blackman 2006; Mbohwa et al.
Enforcement of national Non-enforcement of national laws
laws
2010) but potentially not sufficient on its own. Instead,
Business associations
such efforts must be combined with end-of-pipe treatment,
Cluster firms threatening or
such as waste-water treatment plants or filters that can curb
Peer monitoring Bribing law enforcement officials
air pollution (Lund-Thomsen 2009).
Social networks Cluster firms' suppression of trade
unions A related debate for environmental management in
industrial clusters in developing countries involves whether
Informal regulation SMEs lacking CSR awareness/capacity
Participation in global
individual or common effluent treatment plants are more
Intra-cluster subcontracting processes
Value chains effective for reducing the pollution created by leather
Participation in local value chains
tanneries and textile factories (Kennedy 2006; Patel et al.
2013; Rathi 2013). One argument holds that only larger
firms can shoulder the costs of establishing individual
Main Features of the Cluster and CSR Debate treatment facilities, and the lack of physical space within
cluster, particularly in urban areas, makes the use of
Literature on industrial clusters and CSR in developing common effluent treatment plants the most viable optio
country clusters comprises three broad thematic categories: for treating waste water (Lund-Thomsen 2009). However,
(a) environmental management, (b) work conditions more common effluent treatment plants are not without cha
broadly, and (c) poverty reduction. lenges. Despite their strong potential for improving the
quality of waste water from tannery and textile clusters in
Studies of CSR and Environmental Management developing countries (Blackman 2006), some plants con
in Developing Country Industrial Clusters sistently underperform, because they lack the technical
capacity to treat water to such a level that it becomes safe
Studies of environmental management often investigate the for human or animal consumption. In addition, common
uses of clusters to address environmental pollution prob- effluent treatment plants may suffer free-rider problems
lems caused by SMEs in developing countries, in an effort (e.g., some members fail to pay dues) and conflicts, espe
to determine whether clustered SMEs enhance or harm the daily if large factories in the cluster dominate the decision
natural environment in these industrial districts. An making processes, at the expense of SMEs (Lund-Thomsen
emerging consensus indicates that the manufacturing 2009).
operations of cluster-based SMEs have widespread, nega- Across these approaches, a key weakness is that envi
tive environmental consequences, especially in industries ronmental management in industrial clusters often gets
such as brick-making, textiles, and leather manufacturing portrayed as a problem in need of the "right" technical or
(Blackman 2006). policy-oriented solutions. The answer to complex pollution
Prior literature also makes a business case for environ- problems is thus better management pra
mental improvements in cluster-based SMEs, by attempt- environmental technologies (e.g
ing to demonstrate how cluster-based firms can improve 2008a). Yet such a view inapprop
their financial positions by participating voluntarily in ignores the role of power and politic
joint-action, cluster-based CSR interventions. In practice, management of clusters (Lund-T
this participation often follows the introduction of CSR suggest an opportunity to apply mo
initiatives that help SMEs reduce their operational costs For example, research on political e
(Gulati 2012). However, other studies find no business case countries highlights how unequal
for investing in environmental management improvements different actors (e.g., the state, multi
within clusters (Accountability 2006); smaller firms and international organizations, civil
micro-enterprises in particular have a hard time shoulder- mediate human-environment int
ing the costs of contributing financially to implement joint- disproportionate allocations of envir
action CSR initiatives. Many of them engage in job- burdens to poorer, low-income group
working, serve as subcontractors for larger firms, or work ciently organized, politically influent
only for certain months of the year, so their profit margins their interests and rights (Bailey an
are very small or non-existent (Lund-Thomsen 2009). political ecology perspective on envi
Another pertinent theme is the relative effectiveness of ment in industrial clusters thus
pre- versus end-of-pipe treatment of environmental explaining why particular joint-

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Corporate Responsibility: Theoretical and Qualitative Studies 13

benefit or harm some firms, workers, and community value chains) thus hig
members in some clusters, some of the time (Newell to improve their own
(2005), such that we could move beyond technical, man- traditionally has bee
agement-oriented to more politically and economically form of trade union
based explanations of CSR in industrial clusters. (mostly in the formal sect
collective bargaining and freedom of associa
Studies of CSR and Work Conditions in Developing Hess 2013). A more
Country Industrial Clusters agency also includes the active choices that unorganized
workers make about their employment and broader liveli
Beyond environmental management, we find few studies hood (Carswell and De Neve 2013). For example, wor
that investigate whether CSR initiatives improve working opt in or out of work places according to their gender, ag
conditions in developing country clusters. Child labor is the life cycle, and personal preferences. Recent studies of t
primary concern raised in studies of export-oriented clus- labor agency of unorganized workers in the Tiruppur gar
ters or those that sell to markets dominated by large, brand- ment cluster in India and the Sialkot football-manufac
sensitive multinational companies (e.g., Nike, Adidas). In ing cluster in Pakistan implicate Western codes of con
their comparative analysis of joint-cluster CSR initiatives because they favor workers who can maintain a stable, 8-h
in the football-manufacturing clusters of Sialkot (Pakistan) work routine, earn fixed wages, feel comfortable laborin
and Jalandhar (India), Lund-Thomsen and Nadvi (2010a) in tightly monitored work environments, and adap
highlight how the differential integration of these clusters factory-based work environments. As De Neve (
into the world economy largely determined the kinds of cautions though, this emphasis ignores the need of o
CSR initiatives they developed. In Sialkot, some local workers who prefer flexible work hours, less rigorou
manufacturers joined high-end value chains, whose end monitoring, piece rates, or the ability to combine dom
buyers included famous, international sports brands such as duties (e.g., child rearing, household work) with earning
Nike; the firms in the Jalandhar football cluster instead living. For such workers, laboring in semi-formal w
tended to export footballs to smaller brands in Europe, shops or home-based locations might be preferable. L
North America, and the developing world. The pressure on Thomsen (2013) also notes that the nature of labor agency
local cluster firms to address child labor issues thus was in South Asian clusters (or clusters more broadly) ma
much tougher in Sialkot, and the development of a cluster- constrained by local gender norms, the spatial location o
wide monitoring mechanism in turn was stronger and more workers, their livelihood strategies, and the mode
independent in Sialkot than in Jalandhar. In contrast, the which they are recruited. This literature stream thus rev
Jalandhar producers had more space to develop their own, the importance of studying the specificities of local work
locally oriented solutions to child labor issues, whereas in and employment contexts, as well as the nature of g
Sialkot, large international development agencies (e.g., and local value chains, to be able to determine the a
ILO, UNICEF) essentially designed and drove the CSR (or lack of) possibilities that workers have for impro
interventions (Lund-Thomsen and Nadvi 2012). their working conditions.
Such studies are important for highlighting the roles of
multinational companies, international donor agencies, and
cluster associations in creating or solving child labor con- Studies of CSR and Poverty Reduction in Developing
cerns in export-oriented production, yet child labor in Country Industrial Clusters
domestically oriented clusters is rarely the subject of any
detailed analysis. For example, in Pakistan, several studies Few authors have systematically investigated the ro
note the widespread use of bonded child labor in brick kiln CSR interventions in addressing poverty reducti
clusters, but these bricks mainly supply house construction developing country clusters (Lund-Thomsen and P
within the country, such that some of the "worst instances 2012). Perhaps, the only exception is Nadvi and Ba
of child labor" are not on the agenda of Western advocacy tos's (2004) effort to create a conceptual framewor
groups, consumer organizations, or trade unions to the studying such interconnections on the basis of their r
same extent—as they might be if the products were sold of empirical evidence pertaining to the interface of cluster
directly to Western consumers (Lund-Thomsen 2008). and poverty reduction. These authors argue that indus
In developing country clusters, the implementation of clusters and poverty reduction feature three conce
ethical guidelines or corporate codes of conduct in global links: cluster features, cluster processes, and clus
value chains dominated by international retailers and dynamics. First, Nadvi and Barrientos explain that clus
supermarkets directly affect workers (De Neve 2009). in rural areas, functioning in an informal economy, ma
Literature on labor agency in industrial clusters (and global by a majority of SMEs and microenterprises, or that fea

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14 P. Lund-Thomsen et al.

women, migrants,
Table 2 Main topics in the cluster and CSRunskilled
literature
could have a particularly
Area of of
research po
Area research Main topics
Main topics
poverty in developing cou
Clusters
Clusters and and BusinessBusiness
case forcase for
environmental
environmental
cluster processes, "agglome
environmental
environmental improvements
improvements
and raise the capabilities of
management
management Cleaner technology
Cleaner versus
technology versus end-of-pipe
end-of-pipe
joint action takes such capa
treatment
capacity of local firms, a
Effectiveness of individual versus
external shocks" (Nadvi
common effluent treatment plants
and
the authors highlight that
Focus on technical fixes instead of c
such that they engage
political solutions to environmental in
processes, move into
problems higher
the Clusters
Clusters
experience andand
work
work Child
they laborlabor
Child (monitoring)
(monitoring) have
conditions
competitiveconditions Labor agency
advantages in clusters
Labor agency in clusters in
might downgrade,
Clustersand
Clusters andpoverty
poverty Cluster
Cluster by
features, processes,
features, lower
andand
processes, dynamics:
dynamics:
reduction
reduction their implications
their for poverty
implications for alleviation
poverty alleviation
and production processes or
functions in the value chain
relationship between clus
reduction, it appears th
produce winners and lose
firms and workers.
Regarding the question o
initiatives in industrial cl
find virtually no studies
(cf. Mezzadri 2010). Howev
potential connection of CS
corporate codes in global
impact on poor workers l
developing countries (Sou
Lund-Thomsen 2012). Att
non-factory realms in clu
tradictoryresults, reinfo
contractors in the cluster,
between pro-capital and
chain (Mezzadri 2014a). As
between the typical featu
developing countries-such a
cialization, job-working, a
meet varying national and
demands for stable, well
opportunities with full l
According to Khara and L
subcontracting arrangem
cluster, local firms face p
to protecting labor rights
national demand for footba
to use extensive networks o
workers in the informal e
The basic condition for e
cluster-level firms in thi
thus seems to be that wo
In other words, the devel
inextricably linked to irr
require workers to stay in

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Corporate Responsibility: Theoretical and Qualitative Studies 15

interventions in developing country clusters, much work literature rev

remains to be done. loosely to the broader responsibilities of business in
Using just the available anecdotal evidence though, it developing country clusters (Lun
appears as if joint-action CSR policies and projects offer a 2010a, b; Puppim de Oliveira 20
license to operate for clusters that sell to high value-added and Jabbour 2011; Pyke 2010).
markets in Western Europe or North America. In that case, In their framework, Lund-Tho
local SMEs must engage in such initiatives—sometimes raise the question of whether corpo
labeled public-private partnerships (Lund-Thomsen 2009) or local industrial clusters can be imple
multi-stakeholder initiatives—if they hope to maintain their global value chain governance or lo
access to these Western markets (Dolan and Opondo 2005). Global value chain governance
Some joint-cluster initiatives have succeeded in securing at multinational companies to determ
least rudimentary improvements, such as treatment of highly ducts/services to produce (i.e., whe
polluted water. Initiatives aimed at greening clusters also what price, and in which social a
appear to have raised environmental awareness among tions). Local cluster governance inst
entrepreneurs and facilitated the spread of environmentally action institutions, such as busines
friendly technologies in some locations (Accountability 2006; of commerce, and other trade bodi
Blackman 2006; Crow and Batz 2006; Tewari and Pillai implementing corporate codes of
2005). Yet severe problems persist for ensuring the impie- tings, which might be an option for
mentation and long-term sustainability of these initiatives in local industrial districts in the de
(Kennedy 1999, 2006). Particularly in relation to water authors conclude that global valu
treatment plants, free-riding problems appear common, facilitate the emergence of a mo
because few SMEs can shoulder their portion of the costs of CSR monitoring in cluster settings
running the treatment plant. Moreover, some cluster-based external scrutiny from globa
SMEs join domestic value chains, in which end-customers cluster governance likely facilita
simply are less concerned about environmental management ship of the CSR monitoring initiati
at the supplier level (Lund-Thomsen 2009). Lund-Thomsen propose a potential tra
Finally, the limited anecdotal evidence about the effects of pendence versus the local ownersh
joint CSR action on workers' conditions is mixed. Some cluster settings in developing co
studies highlight the importance of disaggregating the notion implemented in clusters tied into
of the "worker," using gender, age, occupation, education, In a discussion of social upgr
life cycle status, skill level, and other factors that determine country clusters, Puppim de Olive
how workers might be affected by joint-action CSR initiatives clusters that pay taxes, spur soci
(see De Neve 2014). For example, studies of CSR interven- by environmental, health, and lab
tions in the Sialkot football-manufacturing industry note the forms of social upgrading. First,
differentiated effects of CSR initiatives within the cluster into global value chains that e
(Khan 2007a, b), in that for some (primarily male) workers, SMEs to the requirements of i
the introduction of a CSR-compliant factory and semi-CSR- environmentally friendly productio
compliant center-based work led to higher wages, more social dards. Second, social upgrading can
protection, and a more organized work environment. How- engagement in CSR, understood
ever, for other categories of (female) workers, these CSR ment of cluster-based SMEs, whether
measures largely excluded them from the supply chains of commercial considerations, in i
leading brands, because male family members prohibited environmental conditions in the
them from leaving their homes to work in more centralized clusters. Third, Puppim de Oli
production sites (e.g., centers, factories) (Lund-Thomsen upgrading occurs in local econom
2013). Paraphrasing Nadvi and Barrientos (2004), it appears enforcement of labor, environmental
as if joint cluster-based CSR interventions create both winners national regulatory authorities,
and losers among local firms and workers. mental ministries. In an updated versio
Puppim de Oliveira and Jabbour (2011) use the term
governance of clusters" to describe how these drive
Theoretical Frameworks bring about social and environmental improvements in
cluster settings.
Theoretical frameworks linking the notions of CSR and These efforts are an initial attempt to articu
industrial clusters are few and far between. As part of our relationship between social upgrading (or what Pup

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 16 P. Lund-Thomsen et al.

Oliveira and Jabbour 201

clusters. The approaches
resent the kind of environ
cited previously in this r
mental problems as attri
agement failures and op
technical or policy "fix."
insight into the role of u
actors, unequal access, or t
producing environmental p
standards within clusters. called immiserizing growth, such that industrial expansion
Pyke (2010) does not officially use the term CSR but and increased exports is not followed by the creat
instead adopts the earlier social upgrading terminology to more jobs or rising incomes in local industrial regions.
describe an improvement in the quality and quantity of slightly different vein, Khara and Lund-Thomsen
work available in cluster settings. Pyke draws attention to highlight how local manufacturers in the Jalandhar f
how the macro-, meso-, and micro-institutional environ- cluster felt compelled to evade local labor laws, in the l
ment of industrial clusters affect the potential for social of the seasonal rise and fall of global demand for footb
upgrading in local economic regions. His framework is Indian labor laws required the Jalandhar manufact
perhaps more comprehensive than Puppim de Oliveira's grant hired workers the status of permanent emp
(2008b), because he distinguishes between "an enabling (with full social security); in response, the manufac
environment" and the "key actors" in local cluster gov- outsourced the most labor-intensive manufacturin
ernance for social upgrading. In the former category, Pyke football stitching, to home-based locations. Although
includes monetary and fiscal policies and the broader cluster also engaged in philanthropic projects desi
framework in which social upgrading or downgrading may help football stitchers and their families, it simultan
take place. This factor rarely appears in studies of clusters felt compelled to adopt "socially irresponsible"
in the developing world as a whole, though macro-eco- that denied its labor force formal recognition and r
nomic trends, such as changing exchange rates, often have workers, under Indian labor laws. Individual case
significant influences on the export earnings of cluster- that document the design and implementation o
based SMEs and thus the earnings that accrue to local firms action CSR initiatives in developing clusters hav
and workers. The enabling environment category also but we also must pay greater attention to how the
includes traditional CSR factors, such as government reg- institutional context facilities or undermines th
ulation and private social, or environmental standards. mentation, long-run sustainability, and potential ben
Pyke's study then helpfully highlights the linkages between such initiatives.
this enabling environment and the role of particular actors Second, the literature on CSR in industrial clu
(e.g., governments, employers' associations, workers' developing countries tend to focus on export-orien
organizations, communities) in influencing social upgrad- clusters, tied into global value chains. Such stud
ing within clusters. In this sense, Pyke's (2010) framework fashionable, especially in light of the continuing tren
represents the most advanced attempt to theorize about the study global rather than local value chains, but they
forces that drive and/or undermine the engagement of the existing ties of industrial clusters in developi
cluster firms in social upgrading (or what we would call tries with local value chains. As Mezzadri (2014
CSR). ments, the rise of large, domestic buying firms in
developing countries represents an im
opment. In India's garment industry, su
Limitations largely perform the functions of lead firms, as literature on
global value chains has established. Noting cost-cut
Both theoretical and empirical work on CSR in industrial pressures and seasonal demand, dom
clusters in developing countries thus is still in its infancy. brands replicate the sourcing patterns of d
The work undertaken thus far also suffers from several clusters across India to fit various volu
limitations that should be addressed to advance our requirements (Mezzadri 2014b), which lead
understanding of CSR in developing country clusters. relatively small (often casual) core set o
First, global markets might not only promote the adop- the larger workforce finds employment in
tion of CSR policies in industrial clusters in developing mal, or home-based units. The idea of
countries. Participation in global value chains also tends to responsibility for labor management and us

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Corporate Responsibility: Theoretical and Qualitative Studies 17

Table 3 Limitations
to disempower workers through reliance on migratoryof the cluster and CSR literature
labor Table 3 Limitations

and unorganized female home workers thus

Main points remains a key Main points of cri
of critique
strategy for domestic Indian retailers and buyers. Studies of
Overlooks
CSR in industrial clusters in developing negative effects
countries often imposed
cite by Overlooks
buyer sourcing practices
negative eff
Excessive
CSR pressures from Western branded firms focus on export-oriented
but likelyclusters
Excessive focus on exp
Irrelevance of corporate
overlook the more widespread, domestically social
oriented Irrelevance of corp
clusters that feature far worse labor conditions.
Responsibility Accord- Responsibility in SM
in SME clusters?
CSR of
ingly, we need more in-depth studies in clusters as imperialism?
domestically ori- CSR in clusters as
ented clusters, to understand howCSR
local (asas greenwash?
in clusters opposed to CSR in clusters as
global) buyers help govern these domestic value chains
while also examining the potential for CSR (or more likely,
corporate social irresponsibility) in such cluster contexts. the future, in
Third, a related concern goes right to the heart of the often are not av
notion of CSR, in that some authors question whether villages.
"corporate social responsibility" is an appropriate term to Fifth, CSR may
use in the context of SME clusters in the developing world socially and envir
(Gulati 2012; Sachdeva and Panfil 2008). Small enterprises as friends of th
are not corporations. Unlike large firms, SMEs tend to lack against glob
any formalized CSR management procedures and instead their actual r
are managed by one or two key entrepreneurs, who enjoy appearance of
informal relations with their employees. Whereas large wide range of
corporations tend to present their CSR profiles in corporate (forthcoming) n
communications, the CSR engagement of SMEs may be less cluster in In
visible or communicated only implicitly (Jenkins 2004). For awards for its ph
example, some SMEs engage in silent, invisible forms of child laborers,
CSR tied to the religious beliefs or values of the founder or programs, medic
rooted in its local social relations. Such norms might conflict in this cluster
with the formalized codes of conduct that larger corporations that assign
seek to spread throughout their global operations (Vives manufacturing
2006). In India, different definitions exist—such as enter- settings by wo
prise social responsibility, with particular reference to the Indian labor l
characteristics of SMEs (Sachdeva and Panfil 2008) or their earnings ar
simply "responsible business"—to emphasize that all have no job or socia
businesses, regardless of their size, sector, or industry, have occupational hea
broader economic, social, and environmental responsibili- fingers, scratch
ties (Indian Ministry of Corporate Affairs 2011). dies used to stitch th
Fourth, the perhaps justified concern persists that CSR 2012). Local j
might be just another ploy by Western corporations to industrial cluster
impose their will on enterprises in the developing world environmentall
(including those in SME clusters). Khan and Lund-Thom- adopt core busin
sen (2011) indicate that local entrepreneurs in the Sialkot (Jamali et al.,
football-manufacturing cluster tend to perceive CSR as a initiatives in de
form of economic and cultural imperialism. The Western consider more t
brands earn much higher profits by selling the items in they also nee
Western markets than they pass on to their supplier firms. practices and ho
In addition, many brands impose CSR requirements on conditions with
their suppliers, without agreeing to contribute to the cost of
implementing these measures. Local entrepreneurs also cite
CSR as a form of cultural imperialism, such as when A Theoretical
Western brands insist on eradicating child labor from the in Developing
process of football stitching, without considering that such
forms of labor might be a way for children to leam a new On the basis
skill to help them support themselves and their families in retical mo

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 18 P. Lund-Thomsen et al.

country cluster by provid

might enhance or under
CSR in such clusters. We b
before discussing how, i
to determine the (dis)eng
socially (ir)responsible a
First, global and regiona
Western multinationals,
CSR practices in industr
provide a channel by wh
designed, manufacture
sumed, and recycled in g
Thomsen t et al. 2012). In
districts may be compel
requirements of Wester
survive in export-oriente
textiles, and football manu
Nadvi 2010a; Mezzadri 2010; Tewari and Pillai 2005). financial resources, and staff to monitor levels of
North American and European multinationals in turn come (non)compliance with the national labor and environmental
under pressure from campaigns or media stories that regulations, as they apply to manufacturing firms located in
highlight the poor work and environmental conditions for clusters in the developing world. Conversely, in the
production in developing countries, where environmental absence of effective government policies and enforcement,
and labor laws might be less strictly enforced (Bair and we expect a substantial lowering of environmental and
Palpacuer 2012). However, some global value chains can labor standards in developing country clusters,
be less visible, such as when the buyers are SMEs The spread of CSR policies and practices also should be
importing small orders (Lund-Thomsen and Nadvi 2010b). more likely in developing country clusters if their
In these less visible chains, local suppliers in SME clusters enforcement is rigorously monitored by local or interna
have few incentives to embrace CSR practices. Whether tional non-governmental organizations, trade unions, or
global value chains drive or impede the improvement and media outlets. In line with Coe and Hess (2013), we argue
implementation of CSR in developing country clusters thus that such monitoring might take place through labor
depends on the nature of the links among the clusters and agency, such as when workers organized in trade unions
their international buyers. If industrial clusters instead collectively bargain with cluster-based firms to improve
mainly participate in regional, national, or local value their work conditions. Labor agency also could be exer
chains, with buyers that are less concerned about CSR cised by unorganized workers who opt in or out of par
compliance, there likely is no compelling business case for ticular work forms, depending on their preferences and
cluster-based SME to engage in CSR. broader life situations (Carswell and De Neve 2013).
Second, the (non)adoption of CSR practices by SMEs Adopting the argument proposed by Lund-Th
might result from the national institutional contexts in (2013), we speculate that unorganized workers ex
which the clusters are embedded. We use North's (1990, sure on cluster-based firms by opting out of work
p. 3) definition of institutions as "the rules of the game in factories with very poor health and safety recor
society or, more formally,... the humanly devised con- ever, the effectiveness of worker agency is severe
straints that shape human interaction." Following Neilson strained by several factors (Coe and Hess 2013), in
and Pritchard (2009), we also regard institutions as con- laws that restrict the rights of workers to organize
sisting of formal rules and regulations that facilitate or disagreements within communities about how to d
hinder the implementation of CSR measures, as well as of local cluster-based firms, the ability of multina
informal societal norms, values, and ideas that shape con- companies to redirect their sourcing to other cl
siderations of what is "socially responsible behavior" by elsewhere in the developing world, and the role o
companies across divergent contexts (Matten and Moon market intermediaries that hire workers only on tem
2008). In this case, we turn to Campbell's (2007) institu- bases (Coe and Jordhus-Lier 2011).
tional theory of CSR, which seeks to identify the conditions Similarly, communities surrounding cluster-based fi
in which companies likely behave in socially responsible may engage in what Garvey and Newell (2005) c
ways in given national contexts. According to Campbell munity-based corporate accountability strategies, a
(2007, p. 946), socially responsible or irresponsible holding companies responsible for their socia

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Corporate Responsibility: Theoretical and Qualitative Studies 19

environmental conduct. These strategies include attempts international Level Factors

International Level Factors

at community-driven regulation (O'Rourke 2004), through

Visible global value chains Less Visible Clobal Value Chains
the use of weapons of the weak (Scott 1987), such as petty
blockages or sabotage of company operations. Communi
ties may engage in community-based corporate account
ability strategies, publicizing instances of non-compliance
CSR Adoption CSR Non-Adoption
with existing regulations through media outlets (Garvey in Developing Country Clusters in Developing Country Ousters
and Newell 2005). "Barefoot" or worker epidemiology
projects encourage people to identify their own health
National-Level Factors
conditions, such that they gather data about the social and
environmental costs of local industrial operations. Com
. . Strong Well Enforced Labor Weak,
Strong Well
Non-enforced
Enforced Labor Weak, Non-enforced
Labor Labor
andand
mumties then can contestEnvironmental
the results or official
Laws and Environmental Laws repor
Independent CSR Monitoring No Independent CSR Mo
about the health situation
Effective, Well-organized Weak, of employee
Poorly Organized
Business Associations Business Associations
hearings to detail the actual environmental or social co
. Organized Stakeholder Dialogue
Organized
No Stakeholder
Organized DialogueStakeholder
No Organized Stakeholder
Dialogue
Dialogue
Ol industrial production (O Rourke 2004). In
Community-based this sense,
No Community-based the Commun
Corporate
Corporate Accountability Accountability Strategies
communities highlight the
Strategies discrepancies between t
rhetoric of cluster-based CSR initiatives and the reality of
Fig. 1 by
their implementation, as experienced A conceptual
local model of CSR (Non) Adoption
communities Fig-1 in developing
A conceP
country clusters
residing in industrial cluster settings. However, the effec- country c us
tiveness of these community-based corporate accountabil
ity strategies is limited by a wide range of state, corporate,
and community-based factors. For example, if states lack individual firm
provisions for public participation in assessments of envi- Nadvi 199
ronmental impacts from industrial development projects, CSR policies an
communities might be unable to exercise influence over build members'
company decisions. Similarly, paraphrasing Garvey and sanction non
Newell (2005), if local firms in clusters in the developing ronments t
world are not committed to stakeholder dialog, communi- However,
ties likely lack the power to make their voices heard. about the ef
Institutional theorists often emphasize the role of nor- clusters to
mative institutions and their significant influence on com- members
pany behavior (Campbell 2007); such normative ters frequently hig
institutions tend to differ across countries. For developing all members
country clusters, the presence of universities, business Thomsen an
schools, technical training institutes, or other support associations
institutions should promote awareness of the importance of as those rel
high labor and environmental standards. Such institutions workplac
also could collaborate with cluster associations or cham- Thomsen an
bers of commerce to facilitate improved environmental country clu
management by cluster-based firms. The presence of nor- and Euro
mative institutions could partly explain why CSR policies codes of co
and practices have been institutionalized in clusters in requisite of
developing countries; their absence might help explain why the effe
local firms in some clusters pay little or no heed to envi- compliance
ronmental and labor standards. in clusters likely depends on the broader national institu
More generally, we agree with Campbell's (2007) tional context, the profile of the cluster's buyers, and th
argument that businesses are likely to behave in socially particular features of the cluster in which such actio
responsible ways if they join business associations that might be promoted.
promote socially responsible behavior. Similarly, the lit- Finally, Campbell (2007) proposes that compan
erature on industrial clusters in developing countries sug- behave in more socially responsible ways in settings
gests that cluster-based firms may achieve competitive which they engage in regular, organized forms of dial
advantages by engaging in joint action through industry with stakeholders, such as unions, employees, commun
associations or public-private partnerships, in ways that groups, investors, and other stakeholders. To promote C

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 20 P. Lund-Thomsen et al.

policies and practices in

broader national politica
embedded could powerf
with standards. In countri
democracy, including reg
ized, tripartite dialog, cl
likely to engage in instit
employees and nearby com
Proposition
also Newell
2005). We offe
improved CSR
authoritarian states that l
widespread ou
freedom of association, th
occurs, for wh
or a legal right to be heard
pollution are
firms have fewer incentiv
mance (Lund-Thomsen 2004) (Fig. 1). The literature on industrial clusters highlights the
In parallel with this conceptual model, we develop a functional division of labor within and among cluster
series of propositions related to the interaction between key factor for enhancing their international compe
international and national institutional factors that affect ness (Schmitz and Nadvi 1999). The ability of c
the (non)adoption of CSR in industrial clusters in devel- based firms to engage in flexible production in respo
oping countries. changing customer preferences and seasonal demand
changes by drawing on job-working firms an
Proposition 1 In a few developing country clusters, the
constitutes a key strength for internationally c
CSR policies and practices of first-tier supplier firms
clusters in the developing world (Nadvi 1999a
improve as they become integrated into visible global value
advantage stems from price, delivery, and (s
chains, supported by local industry associations.
quality considerations, not in relation to CS
In the past two decades, significant interest has centered based firms often outsourc
on the intersection of "global" value chains and "local" cluster or to other clusters, t
industrial clusters in developing countries (Humphrey and ardous, or polluting steps o
Schmitz 2002), often in light of the claim that integration networks of subcontractors tha
into the world economy provides local cluster firms with CSR performance (Khara an
opportunities to improve their products and production Thomsen 2009). Even if so-
processes by interacting with demanding global buyers, at interact with globally demandin
least in the short term (Schmitz and Nadvi 1999). However, only the first-tier firms
these local firms also face significant risks in the long run, compliance requirements. This
because global buyers can relocate their sourcing of pro- as a de facto smokescreen to
ducts and services to other clusters, elsewhere in the lations and environmental pollu
developing world (Bair and Gereffi 2001). A similar tiers of the cluster (Jamali et a
argument holds that industrial clusters may achieve social and Nathan 2010). The scale
and environmental upgrading by interacting with brand- environmental pollution in d
sensitive global buyers who emphasize CSR in their thus a key factor.
interactions with developing country suppliers. Yet the
Proposition 3 In most developing country clus
literature also highlights the importance of local collective
rights violations and environmental pollution
institutions (e.g., business associations) to facilitate the
spread, because the factors promoting CSR p
implementation of CSR policies and practices across
practices are either weakly present or entirely ab
developing country clusters (Lund-Thomsen and Nadvi
2010a, b). In reviewing empirical studies of environmental and labor
In reality though, in many industrial clusters in devel- standards issues in developi
oping country clusters, global buyers are absent. Gulati mined that most CSR activi
(2012) indicates that a relatively small proportion of meal fashion. For example, in
India's more than 1200 industrial clusters are export ori- initiatives by the Old Ardbennie
ented, such that they never are exposed to the globally Zimbabwe, Mbohwa et al. (20
demanding buyers envisaged by global value chain litera- effluent management by cluster
ture, unless those buyers have set up local branches within achieved water usage savin
India (Awasthi et al. 2010). Instead, these clusters address note that cluster-based entrepre

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Corporate Responsibility: Theoretical and Qualitative Studies 21

collective philanthropic projects, even as labor rights vio- practices in S

lations remained rife in the subcontracted stitching center literature on
and home-based units. We ascribe this partial commitment highlights econom
to CSR in developing country clusters to the combination, or willingness to e
perhaps absence, of pressures that drive SMEs in developing laws, bribery by
country clusters to engage in sustained, coherent CSR. Even local entreprene
as we acknowledge the potential capacity constraints related tion in local (rat
to securing compliance with labor rights and proper envi- barriers to the pr
ronmental management by micro-, small-, and medium- developing cou
scale entrepreneurs in developing country clusters (e.g., Substantial wo
Dasgupta 2000), we believe that the piecemeal adoption of ment in cluster
(or complete non-engagement in) CSR policies and practices country clu
in developing country clusters results from the lack of management lit
drivers in their institutional environment. For example, in focus on iss
the Sialkot and Jalandhar football clusters, both globally mental mana
demanding buyers and local cluster-based business associ- treatments,
ations had key roles in driving joint-action CSR initiatives, political inter
but the bottom-up pressure from workers was lacking, due to ronmental cha
the poorly organized and, in the case of Jalandhar, corrupt Research on labo
trade unions (Lund-Thomsen and Nadvi 2010a). Studying few systematic
leather manufacturing in Mexico, Blackman and Kildegaard quality of wo
(2010) find that state-level enforcement of national envi- ters. A promi
ronmental policies was ineffective, but industry-level attention being p
cooperation and informal, community-based monitoring of to improve th
the CSR performance of SMEs helped secure incremental clusters. Fina
gains in environmental performance. Barrientos 2004), virtually no academic or policy-ori
ented work systematically investigates the interface of
industrial clusters with poverty reduction in developing
Conclusions countries. A key finding in relation to studies of envi
ronmental management, work conditions, a
We have set out to explore what we know about the topic reduction in developing c
of industrial clusters and CSR in developing countries, for trade-offs across diff
what we do not know, and what we need to know about this example, to reduce environ
topic. In doing so, we have structured our analysis based SMEs, it may be n
according to the drivers of and barriers to CSR adoption in worst factories, which i
industrial clusters, the main features of CSR activities income losses for low-inc
undertaken in cluster-based settings, the limitations of families, thus compound
these CSR activities, and the theoretical frameworks that poverty rather than redu
have been elaborated to conceptualize the link between The relative lack of studi
CSR and industrial cluster development. We also have in developing countries is pa
outlined a conceptual framework for analyzing the factors to child labor, labor conditio
that might enhance or undermine the institutionalization of reduction. A similar gap ap
CSR in such clusters. of CSR activities in cluster settings in developing coun
The main drivers of CSR initiatives in developing tries. Few if any systematic impact assessme
countries include SME participation in global value chains, such CSR initiatives. The available anec
business associations that facilitate joint-action initiatives, suggests that CSR initiatives may help clu
social networks within clusters, the implementation of their license to operate, result in limited im
national labor and environmental laws, and community- water quality and savings from the introduc
based monitoring (whether by trade unions or community technologies, and help reduce the presence of c
members) of SMEs' social and environmental perfor- cluster settings. However, we are left with th
mance. However, our literature review also indicates that that these initiatives are limited in nature,
the absence of many of these drivers constitutes primary insufficient to transform cluster develop
barriers to the implementation of CSR policies and socially and environmentally responsible ways

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 22 P. Lund-Thomsen et al.

We were able
tanning. to
Environmentalidentify
Economics and Policy Studies, 129(3),
115-132.
works (excluding those pres
Blowfield, M., & Frynas, J. G. (2005). Editorial: Setting new
seek to explain the drivers o
agendas—Critical perspectives on corporate social responsibility
country clusters; even
in the developing world. here,
International Affairs, 81(3), 489-513.
This situation might
Campbell, be
J. (2007). Why would corporations behave in illus
socially
tions responsible ways:
associated with An institutional theory
CSRof corporate social in
responsibility. Academy of Management Review, 32(3),
one hand, the 946-967.
literature ofte
driven global value
Carswell, chains
G., & De Neve, G. (2013). Labouring for global markets— to
Western-styleConceptualising
CSR labour agencypolicies
in global production networks. f
world. On theGeoforum,
other 44(1), 62-70. hand, t
Coe, N., & Hess, M. (2013). Global production networks, labour, and
ognizes how global
development. Geoforum, 44(1), 4-9.
buyer-d
mine labor and
Coe, N. M., &environment
Jordhus-Lier, D. C. (2011). Constrained agency—Re
pricing evaluating
policies the geographies of
and labour. Progressthre
the in Human
Geography, 35(2), 211-233.
low cost producers elsewh
Corpwatch. (2014). Definition of greenwash. Accessed March 28,
These global value chains
2014, from http://www.corpwatch.org/article.php?id=242.
contradictory
Crow, M.,pressures tha
& Batz, M. B. (2006). Clean and competitive? Small-scale
nomically, bleachers and dyers in Tirupur, India.
socially, In A. Blackman (Ed.),en
and
Small firms and the environment in developing countries
SME's behavior can be in
Collective action and collective impacts (pp. 147-170). Wash
Finally, our review
ington, DC: RFF Press. highligh
initiatives inDasgupta,
developing cou
N. (2000). Environmental enforcement and small industries
exercise in economic and
in India: Reworking the problem in the poverty context. World
Development, 28(5), 945-967.
attempt by local SMEs to gre
De Neve, G. (2009). Power, inequality and corporate social respon
and social destructive activit
sibility: The politics of compliance in the South Indian garment
industry. Economic and Political Weekly, 44(22), 63-71.
De Neve, G. (2014). Fordism, flexible specialisation and CSR: How
Indian garment workers critique neoliberal labour regimes.
Ethnography, 75(4), 184-209.
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